Germany's Chancellor Olaf Scholz arrives prior to the start of the EU-Western Balkans leaders' meeting in Brussels on June 23, 2022. - The European Union, which at a summit on June 23 and 24, 2022, will discuss whether to make Ukraine a membership candidate, has admitted over 15 countries in the past three decades. (Photo by Kenzo TRIBOUILLARD / AFP)

According to a media report, Chancellor Olaf Scholz (SPD) intends to propose a tax and duty-free one-off payment by employers to compensate for the increased energy costs. This should be transferred next year, reported “Bild am Sonntag” (BamS). In return, the unions should waive part of the wage increases in collective bargaining rounds.

Scholz wants to propose this on July 4th at the concerted action with employers and unions. According to this, a wage-price spiral and a further increase in inflation should be prevented.

The Chancellery assumes that the current inflation is being driven primarily by a supply bottleneck, both in the energy sector and in other products. According to the BamS, one argument in favor of the one-time payment is that it reaches the citizens quickly and that employees with low and medium wages benefit the most. However, since only 43 percent of employees are paid according to the collective agreement, separate solutions are still needed for employees who are not bound by a collective agreement and pensioners with a small pension.

“Many things that we buy have become more expensive. Food, but especially the prices for energy. We notice that at the gas station, we notice that when we have to pay the heating bill. Heating oil, gas, everything is much more expensive than it was a year ago. That’s why we have to prepare for it,” said Scholz in his video message “Kanzler compact” published on Saturday before the G7 summit in Elmau. Germany must agree with others what needs to be done.

During the concerted action in the Chancellery, the government wants to consult with employers and trade unions on coordinated action to combat the high prices. The historical model for the initiative dates back to the 1960s. At that time, trade unions had promised to hold back on wage demands, in return the state supported the economy.

In May, the German inflation rate reached 7.9 percent, its highest level since the winter of 1973/1974. According to economists, the end of the price increases should not yet be reached – especially not if Russian gas deliveries fail to materialize.

The government is already trying to relieve the burden on citizens with the tax reduction when filling up, the nine-euro ticket, a flat-rate energy price in September/October and other measures. Economists are calling for more targeted use of aid. With a view to the tank discount, the “Wirtschaftsweise” Veronika Grimm told the German Press Agency: “Attempts were made to make fossil fuels cheaper – with moderate success. You have to cushion that for those who cannot bear this hardship.” Marc Schattenberg, economist at Deutsche Bank Research, also warned: “The support for needy households could be even more targeted than last time.”

Federal Finance Minister Christian Lindner made it clear that the state could not absorb every price increase. “Further relief measures would have to move within the framework of the debt brake,” affirmed the FDP politician in the “Rheinische Post”. He emphasized that in an economic downturn, higher borrowing is also permitted. Lindner will present his draft budget to the cabinet on July 1.

Bank President Christian Sewing described it as “important that the debt brake is adhered to in the medium term.” Fulfilling targets is enormously important for market confidence.” “In the long term, we all benefit from the debt brake. But you also have to keep an eye on the respective situation, and then it can make sense to act a little more flexibly temporarily.” Sewing cited the special fund for defense as an example.

The debt brake, which has been anchored in the Basic Law since 2009, only allows the federal government to make new loans to a limited extent. In 2020 and 2021, the federal government made use of the exceptional regulation to be able to temporarily suspend this instrument in emergency situations due to the high burden resulting from the corona pandemic. In 2023, Lindner wants to comply with the debt brake again.